State of the Economy: A New US Operating System?

Thursday, 18 April 2013, 9:00am – 10:00am

Panelists:

  • Keith Ellison, US Congressman (D-MN)
  • Carly Fiorina, Chairman, Good360 and former Chairman and CEO, HP
  • Steven Rattner, Chairman, Willett Advisors and former Counselor and Lead Auto Advisor to the US Treasury Secretary
  • Paul Volcker, Former Chairman of the Board of Governors, US Federal Reserve

Moderator:

  • Robin Harding, US Economics Editor, Financial Times

A troubled US economy prompts calls for dramatic change

In contrast to much of the developed world, the US economy is prospering. Yet cracks in its foundation run deep, and require dramatic reform, agreed four high-level panelists brought together by the Bertelsmann Foundation.

The economy’s relatively strong position should not be celebrated, said Steve Rattner, chairman of Willett Advisors and former lead auto advisor at the Treasury Department.

He noted significant structural problems in the nation’s fiscal position and bemoaned the lack of real wage growth, an issue also noted by his co-panelists: former US Federal Reserve Chairman Paul Volcker, Good 360 Chairman Carly Fiorina and US Congressman Keith Ellison (D-MN).

“Washington has been more the enemy than the friend of our economic recovery,” Rattner said, citing its failure, among others, to tackle regulatory reform or craft fiscal policy “more than two months at a time”.

Asked by moderator Robin Harding of the Financial Times if the US economy needs a “new operating system”, the panel kicked off the 5th annual Bertelsmann Foundation-Financial Times conference on global economic issues.

Panelists took turns listing drags on the US economy, among them: an underfunded entitlement system, a gridlocked Congress, a complicated tax code, a heavy national debt and an increasingly skewed distribution of wealth. Lack of a clear blueprint for a more functional fiscal policy, several said, reinforces a confidence problem that discourages private investment.

Fiorina said the nation should hone in on the burdens of small-business owners. They employ more than two-thirds of Americans and could be the key to robust growth if only the government could address the widespread view that it is a hindrance to entrepreneurs, she said.

“When you have more small businesses failing, and fewer of them starting than any time in the last 40 years, you have a structural problem,” said Fiorina, who is also the former CEO of Hewlett Packard and a former Republican candidate for US Senate from California.

Help small businesses by addressing the nation’s immigration problem, she urged, and revamp an education system that is failing to produce workers qualified for jobs in industries that can grow the American economy. Four sectors show particular promise, she said: energy, health and biological technology, aerospace and space technology, and information technology including social networking.

Ellison expressed frustration with the business sector, saying that it demands much of American taxpayers but balks at policy proposals that could strengthen the workforce and rebuild infrastructure. It shuns, he said, the sort of regulation that inspires confidence in the US economy.

“The business folks basically expect the public to subsidize their training,” the Congressman said. We’ve got a business community that tells us “we don’t want to pay any taxes. We don’t want any regulation.”

Fiorina responded that such questioning of motives impedes the cooperation necessary to meet the challenges threatening the economy. A new consensus won’t be built upon such divisive remarks, she said, whether its former GOP presidential nominee Mitt Romney denigrating the “47 percent” of Americans who, he said last year, want a free ride from government, or comments such as Ellison’s, “saying business people want something for nothing”.

Rattner pressed for a global perspective on American economic woes. “There’s an overarching global competitiveness issue for us,” he said. “We shouldn’t kid ourselves” about the magnitude of the challenge from nations that can pull American jobs abroad.

“I believe in free trade. Everyone in the room does. But there are a lot of winners and losers,” he said, citing the deep pressure on wages from overseas competitors.

Consider General Motors, Rattner added, which offered in 2009 a wage and benefit package that was worth on average $55 an hour in the US and $7 an hour in Mexico. Volkswagen, he then noted, recently paid workers $14.50 an hour at its Chattanooga, Tennessee plant.

“That’s not a middle class wage,” Rattner said. “That’s a lower middle class wage.”

Volcker also placed American challenges into a multinational context: The international monetary system is instable, he said. “The whole purpose of an international system is to provide discipline where it is needed and liquidity where it is needed.” But, he continued. “The magic of the marketplace hasn’t worked very well.”

The US is further plagued by the problem of its citizens’ lack of confidence in their leaders, Volcker added.

“We have an underlying problem in this country,” he said. “People don’t trust the government.” When asked, “do you trust your government to do the right thing most of the time, less than 20 percent of the people now say ‘yes,’” Volcker said. “It’s hard to get anything done with that sort of attitude.”

Ellison said the distrust could be well founded, as evidenced by the April 16 Senate vote to reject universal background checks for anyone who wants to purchase a gun.

“Ninety percent of the American public said they want to see that happen,” said Ellison, who blamed the influence of money in politics for the gulf between Congress and the public.